In today’s briefing:
- China TCM (570.HK) – Latest Updates on Privatization and the Potential Merger with Taiji Group
- Let’s Talk Aussie Franking Credits
- S&P/ASX Index Rebalance Preview: Potential Changes from Now to June
- HD Hyundai Marine Solution IPO Valuation Analysis
- Early Sign of AI GPU Market Inflection Point?
- KT’s Foreign Room Below 7.5%, Weight Down-Adjustment Expected in May, Resulting in 3x ADTV Outflow
- JAPAN ACTIVISM: Murakami’s Aozora Bet Not Going Anywhere, But No Sales Yet
- Quiddity Leaderboard STAR 50 Jun 24: 3 ADDs/DELs Possible but Should Be Monitored Closely
- Chilled & Frozen Logistics (9099 JP): Pass The🍿as the Board Responds to AZ-COM Maruwa (9090 JP)
- SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade
China TCM (570.HK) – Latest Updates on Privatization and the Potential Merger with Taiji Group
- Since “no dividend was proposed for the year ended 31 December 2023”, the privatization is highly likely to succeed. It may not be wise for investors to bet against privatization.
- The recent high-level personnel changes in Taiji is “thought-provoking”, which seems to be preparing for the next step of integrating with China TCM. Spin-offs and integrations are expected within Taiji.
- We analyzed possible playbook. In this way, CNPGC is able to solve the problem of horizontal competition. China TCM could also relist in A-share to gain higher valuations/better liquidity.
Let’s Talk Aussie Franking Credits
- To an Australian individual investor, franking credits simply recognise tax already paid by a company on their earnings. These credits may reduce tax you would otherwise pay on dividend income.
- This dividend imputation system prevents double taxation and essentially treats company tax paid as a prepayment of shareholder tax.
- The system makes a lot of sense. It’s a curious thing so few countries have adopted a similar corporate tax structure.
S&P/ASX Index Rebalance Preview: Potential Changes from Now to June
- With three-quarters of the review period complete, there could be a bunch of changes across the S&P/ASX family of indices in June.
- The Red 5 Ltd (RED AU) / Silver Lake Resources (SLR AU) merger could lead to an ad hoc change prior to the implementation of the June rebalance.
- There will be 1.6-25 days of ADV to buy from passives in the inclusions while the impact on the deletions will range between 0.8-11 days of ADV.
HD Hyundai Marine Solution IPO Valuation Analysis
- Our base case valuation of HD Hyundai Marine Solution is target price of 98,254 won per share, representing an 18% upside from the high end of the IPO price range.
- The company’s ROE averaged 67% in 2022 and 2023. In comparison, the comps’ ROE averaged 10.6% in the same period. [HD Hyundai Marine Solution > Comps]
- Our base case valuation is based on 24.7x P/E (comps’ average) using our estimated net profit of 178.7 billion won for the company in 2024.
Early Sign of AI GPU Market Inflection Point?
- Taiwan Dell said “AI GPU shortage issue has been resolved. The lead time has been cut from 40 weeks by the end of 2023 to 8-12 weeks or less now.
- We see this news short term positive but medium term negative to AI GPU supply chain vendors but need more information to confirm if this is an inflection point.
- 1. Taiwan Dell got priority supply? 2. Earlier overbooking over? 3. Lead time cut by supply upside? 4. Cooling company said the same; 5. Will lead time continue to shrink?
KT’s Foreign Room Below 7.5%, Weight Down-Adjustment Expected in May, Resulting in 3x ADTV Outflow
- KT’s foreign ownership declined since January, below 7.5% by last month. If it remains, the adjustment factor halves to 0.25, impacting KT’s Global Index weight.
- With the May review screening date estimated for April 17th, swift reversal of foreign inflows seems improbable. Thus, KT’s adjustment factor dropping to 0.25 is likely.
- This could lead to an outflow of 1.6M shares, approximately 3x ADTV. Given the prolonged price impact on telcos, exploring a long-short setup with SKT might be prudent.
JAPAN ACTIVISM: Murakami’s Aozora Bet Not Going Anywhere, But No Sales Yet
- Just under 6 weeks ago, Japanese activist Murakami-san’s company and daughter reported a 5+% stake in Aozora Bank Ltd (8304 JP). They bought after a sharp dip caused CRE-related writedowns.
- As is normal, they bought more (now 8.92%) post-5%-filing-trigger, but before the actual first filing. And as is normal these days, the stock popped on the first filing.
- Then it fell, and hasn’t recovered much. So far, on a weighted basis, they are up 1% vs TOPIX Banks Index.
Quiddity Leaderboard STAR 50 Jun 24: 3 ADDs/DELs Possible but Should Be Monitored Closely
- STAR 50 Index is a tech-focused, blue-chip index in Mainland China which tracks the top 50 largest and most liquid names in the STAR market of the Shanghai Stock Exchange.
- In this insight, we take a look at our expectations for potential ADDs and DELs for the STAR 50 index during the June 2024 index rebal event.
- I currently expect three changes resulting in a one-way flow of around US$531mn but there is still room for the expectations to change.
Chilled & Frozen Logistics (9099 JP): Pass The🍿as the Board Responds to AZ-COM Maruwa (9090 JP)
- The Chilled & Frozen Logistics Holdings (9099 JP) Board has responded with several questions regarding AZ-Com Maruwa Holdings (9090 JP)’s pre-conditional hostile offer of JPY3,000 per share.
- The Board questions the transaction’s schedule, terms and potential synergies. The Board has also used the ruse that due diligence access would justify a higher offer price.
- Expect several rounds of Q&A and a delay to the tender start. If shares continue trading through terms ahead of the tender start, AZ-COM Maruwa will likely have to bump.
SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade
- With the review period nearing completion, 6 stocks are in inclusion zone and 8 are in deletion zone. However, there can be a maximum of 5 changes at a review.
- We estimate a one-way turnover of 7% at the June rebalance leading to a one-way trade of CNY 9.7bn (US$1.34bn). Index arb balances could increase the impact on the stocks.
- The inflows into mainland China ETFs have further increased the flow and impact on the potential changes. The potential adds have continued to outperform the potential deletes.
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